MND NewsWire features plain and simple interpretations of industry related data and events written in a manner that maintains the interest of random readers while still catering to the perspective of a housing market professional.

The Wall Street Journal is reporting that mortgage lenders are facing an assault on yet another front as the mortgage debacle rolls on.

Investors, including Freddie Mac and Fannie Mae, are taking a long look at loans they have purchased from lenders over the last few years and the contracts that govern those purchases and are trying to force banks and mortgage companies to buy back growing numbers of troubled loans.

Many loan sales are governed by provisions that require lenders to take back loans that default unusually fast or contained mistakes or fraud.

Countrywide Mortgage, particularly hard-hit already, reported in a securities filing in May that its estimated liability for claims from investors was $935 million as of the end of March compared to $365 million a year earlier. The company has taken a first quarter charge of $133 million for claims it has already paid.

The Journal reports that many of the recent loan disputes revolve around claims of bogus appraisals, inflated borrower incomes and other misrepresentations made at the time the loans were originated. 'Some of the disputes are spilling into the courtroom, and the potential liability is likely to hang over lenders for years.'

Fannie Mae told analysts in a recent conference call that it is reviewing every loan that defaults and seeking to force lenders to buy back those that did not meet promised quality standards.

Bond insurers such as Ambac Financial Group and MBIA are adding to the pressure. The latter company has been working with forensic experts to examine pools of loans that were supposedly composed of home equity loans and credit lines made to borrowers with good credit. The Journal quoted a MBIA official who said, that 'there are a significant number of loans that should not have been in these pools to begin with.'

Lenders may feel it imperative to boost loss reserves in advance of any claims because of the potential for lawsuits. Three suits have already been filed against lenders by investors alleging the lenders understated their repurchase reserves.

Comments

This is the way things should be done. Ufortunately,the system has been so forgiving for so many years that the buy-back option has not been utilized as it should have been. The buy-backs, in fact, should extend all the way back to the mortgage broker that was responsible for originating the loan in the first place. That's how responsibility is fixed. If the investor finds it has purchased a faulty oan, it demands that the lender buy it back. If the lender is at fault, it takes the loss. If the lender finds fraud by the broker, it demands that the broker buy the loan back. If the fraud is committed by the borrower, the broker sues the borrower and presses charges and the borrower pays or goes to jail. This system is already in place in virtually every state in the union. The justice system has a place in the mortgage business. This system forces the broker to be much more careful in originating the loans and the laws are already there. What is needed is enforcement.

John F

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The fallout from this will be more and more lenders requiring mortgage companies/brokers to be held responsible for any loans that default & the mortgage company held responsible. Once again, brokers are getting screwed.

Pat

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It's about time that a revolution takes place demanding those brokers who lied to the lending institutions (mainly Countrywide who blindly approved of all those boggus loans and never asked for a shred of proof or evidence) be forced to pay back the thousands of dollars they squeezed out of vulnerable minority disabled seniors knowing perfectly well that those seniors did not qualify for such high loans being that they are on a limited income thus do not qualify for those huge boggus "ARM" rates- those brokers together with institutions like Countrywide caused the catastrophic situation we're facing today- THEY LIED, THEY CHEATED, AND THEY STOLE MONEY OUT of minority disabled seniors by inflating their house values, lying on the application by leaving first blank spaces and promissing to "take care of it" afterwards" or promissing to reduce remodify or re do their loan the following year with a lower fix rate- ..."dont worry, the broker told me...I'll put you in this temporary 8.5% for now and come back to me next year at this time and I'll reduce your rate to a 5.5 - he knew perfectly well that he was going out of business and he knew perfectly well that I would never have been able to continue payng on my own a mortgage of $3,500.00 a month after the funds deposited to pay for that mortgage temporarily would have been depleted...he reasured me that he would take care of it the following year- my total income doesnt give me the right to own such a huge mortgage- the boker lied, he knew it and he should have refused to do the loan because I did not qualified, instead he lied with the approval of countrywide, he cheated me and he stole $30,000.00 (as profit ) out of my hard earn money: money that I am now paying with my sweat and hard work (Im 66 yrs old, have a disability and should not continue to work for the rest of my life because this broker is a thief a lyer and a unconscious .....................HE SHOULD BE MADE BY LAW TO REPAY EVERY SINGLE DOLLAR BECAUSE HE IS NOW CONTINUING TO DO THE SAME AT HIS NEW JOB- WHILE IM STRUGGLING TO SURVIVE AND HOLD ON TO MY HOME - I WOULD HAVE BEEN ON THE VERGE OF FORECLOSURE WERE IT NOT FOR MY TENACITY, MY PERSISTANCE AND MY DETERMINATION TO SEE THROUGH THIS PROBLEM AS IM DOING RIGHT NOW...EVERY DAY, EVERY NIGHT TILL 3 AM - IM STRUGGLING, IM SEARCHING FOR WAYS TO STOP MYSELF FROM LOSING MY HOME- THIS BROKER AND THE LENDING INSTITUTION should be forced by law to payback every dollar and re do this refinancing just as the way he said from the beginning stretch it out to the max to allow this minority disabled senior to stay in her home for the rest of her life- WHEN THE TIME IS RIGHT I WILL NAME THE NAMES - IT'S UNFAIR, AND CRUEL THAT HE HAS LIED TO GET ME TO REFINANCE AND IS SETTING PRETTY WITH $30,000.00 OF THE MONEY I AM GOING TO HAVE TO PAY BACK FOR THE NEXT 30 YEARS - ILL BE 96 WHEN IM FINISHED PAYING FOR THE MONEY HE STOLE FROM ME-

anonymous

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by making lenders buy back loans this will only force the lenders to close their doors, more people out of work. insure loans are just that they are insured for risk, for many many years these loans have been paid at a very high interest rate. Lenders need to work with the people to avoid foreclosure, if the borrower cannot afford the whole payment then the lender needs to accept what they can afford and refinance the loan into a lower interest rate to keep this market from further spiral down. it's a very sad case of affairs when a entire nation is spiraling downwards. The way I see it, a little of something is better than nothing, take what you can for now until the borrower can do better. That way we don't have a bunch of houses on the market empty getting destroyed beyond fixing, no one wins, the neighborhood value goes down and the homeowner is homeless.
The lenders brought in the SUB PRIME mortgages for these borrowers, they now need to deal with the out come. Take what you can get and save these homes.

Mike Kortas

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David- I have a couple of questions for you?
Do you not realize that the Brokers already have signed agreements with the Lenders not forcing them to buy back?
Do you also realize that some Lenders have signed agreements forcing Brokers to buy back? If the Broker decides not to do business with them, they simply don't.
If they have this agreement already, you can't "change the rules" after it's all done. If a law was broken, then pursue that accordingly, but it's not possible otherwise.
You indicate that if the Lenders buy back all of these loans, they there will be a loss of jobs. What do you suppose will happen if the Brokers stop sending these Lenders loans because the Brokers close shop? Do you not think this will result in the loss of jobs for Lenders then also?
My Outlook:
Investors, Lenders, Brokers, Borrowers and Regulatory bodies have full right to enforce their contracts/laws. IF, and only if it has proper reason to do so. If it is not in the agreement (Brokers to Lenders) then they can not pursue it. The Lender has a responsibility to underwrite the loan properly, that is why they were so rich during the "good ole days". It sucks that they have to buy back, but that is their responsibility.
If the Broker did something wrong like helped in the fraud of documenting income, then they should be punished as well. By a lawsuit from the Lender, or better yet, criminal charges from Regulatory Bodies.
But you certainly don't get a chance to "move the goal-post" after it's all said and done, and come up with new rules to now start making people not responsible for buy-backs, responsible for them. Lenders should force that in their future Broker Agreements if they are concerned for that or feel it's better for their business. But my guess is that Brokers won't work them.

David L. Skibowski

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Anonymous, I'm sure everything in your world is fair. When people break the rules you foregive them and say that's OK. Maybe in your world that's the way things are, and I presume that's what you're teaching your kids, but let me tell you a plain hard truth, that's not the real world! There are laws and they should be followed. If the contract is good, abide by it.
Greedy people are to blame for the situation, Borrowers to Brokers to Investors. If they broke the law they should pay.

Anonymous

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Lenders made huge profits during the boom. If they don't have reserves to handle this, they will go out of business, the strong will remain strong and will make it through. As a mortgage broker, I am fully aware of the buy-back provision in each of my broker agreements and have been very careful to stay as far from fraud as possible. Some will go out of business because of buy-backs, but they deserve it. They (and the borrowers who took loans they can't afford) are part of the cause. Why should government or anyone else remove the consequences of their actions?
Some people act 80% or 90% of homes are going into foreclosure - it's actually less than 1%!!! (http://realestate.msn.com/buying/articlenewhome.aspx?cp-documentid=340866)
Life will go on...Even if some people (and lenders) have to pay consequences for bad decisions.

anonymous

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the best way to fix this housing problem,i believe that instead of foreclose and loose almost half of the mortgage and live the people homeless,banks should work with the homeowners to try to refy the loan to a rate and amount that the owner can pay for the time been instead of leaving those houses destroy and unsold and ruin the neighborhood with devaluation.

Jose M.

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Those lenders that engaged in falsifying work and proof of funds documentation simply to provide a bad loan, have no business staying in that business. In fact, they should all be prosecuted to the full extent of the law. Theyâ€™ve caused the break down in the economy that we are all experiencing today.

Dennis Anderson

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As a Realtor, I have worked with the good, the bad, and the ugly! A few of the brokers were bottom feeders and bent or broke the rules to close the deal. Those are the ones that are quickly disappearing from the scene as the investors begin to require buy-backs. This will eventually clean things up, but it will also cause undue delays and rejections as more lenders over react and become too cautious.

Cindy

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How can any one of you sit here and say that this mortgage mess is the borrowers fault because of bad decisions? The "bad decisions" from the borrowers came from the brokers and lenders in the first place. If they had not been so greedy with wanting so much money, it probably would have eliminated fraud and predatory lending to some degree anyway. Investors should have checked more thoroughly on what they were investing in. If they had, they would have found out a long time ago that there was fraud involved in most of the subprime loans. Justice is here, it just needs to be enforced and it is just a matter of time now that these people will loose their big time mortgage broker jobs or even go to jail for something that they knew was wrong in the first place. They all led borrowers down the paths to financial destruction so they could reap the big payoffs in the end and it is finally catching up with them. And, as for the 1%foreclosure, I do not know what planet you live on, but you need to wake up and smell the coffee!

noslen

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Pat: you're in your 60's, living on disability and take a cash out mortgage for about say $240k?

Miranda

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It seems as though there is plenty of blame to go around. But when did investment not become about risk? Any investment carries risk especially bad investments.
I feel worse for those victims who are losing their homes than for investors. I think that better financial education is needed in this country. More people need to be taught how to make better financial decisions.

Douglas M. Thomson Sr.

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When the loan was Originated the Loan Broker made false statements to Home Owners at the start of the loan application. Low 1-2% interest teaser rate payments looked great and the loan broker made the false promise that your payment would go down. When in fact the additional unpaid interest was added to the back of the loan. How can you build equity this way? The Loan Broker said that in 1-2 years the lender would let you refinance to a much lower interest rate. This was not true at all. The Broker made it sound as if your lender would agree to reduse your interest rate in 1-2 years. The fact is your lender does not have to do anything. The Loan Broker made a false promise, projecting equity growth and decreased interest rates during a time of inflated home values. Most Loan Brokers failed to mention the added unpaid interest may eat up any equity you may have achieved if any during this short period of time. If the lender was to go back to the meeting with the home owner and the loan broker they would hear over and over again this same false statements. The Loan Broker earned the highest commision knowing that in 1-2 years the lender would not agree to do anything. By this time the Loan Broker is gone with 2-3% of the home loan value paid to them in commisions. To add insult to injury. Now investors of are paying the price again as home values have dropped. Home owners owe more then the home is worth and many have walked away from their homes are worth, as a result of the increased mortgage payments due to higher interest charges and growing loan amounts. What do you do at this point? Damage control is the only solution. However the investors still don't have enough control over the loan servicing companies. As a result of these unqualified loan servicers delay and threaten home owners that they will start forclosure. Loan Servicers do not have the authority to initiate forclosure. Only the lender does after several months of failed attempts working with the home owners. Home Owners trying to get help can not make the high payment and the service company is now getting in the way of any real help. The Home Owner can not get the help they need so they walk away when they realize they can rent for less and can now buy the same home for 20-40% less then they now owe on their current home. Whats the solution you ask? The Lender instructs loan servicer to Freez interest rates at a 5% interest only payment to start with. Inform the Home Owner that they are very important to them and that they be able to remain in their home. Inform the Home Owner they will be contacted by a Loan Negotiator to help them modify their home loan so that they can afford to make their mortgage payment and stay in their home. If the lender is smart they will do everything in their power to cut their loss and still keep the home owner in their home. Even if this means lowering the interest rate and redusing the loan amount. After a qualified loan negotiator has looked at the home value, the home owner, and their ablility to pay. A modification can be made to insure the home owner stays in the home if at all possible. Not all home owners will meet the investor guide line. At this point then the Home Owner would be sent to the Consumer Credit Counsel for help.

John

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I have read over all these tyrants of finger pointing and the funny thing is, everyone wants to point the finger and blame the other person. Take accountability and quit blaming everyone else for your shortcomings. Home ownerships is not a right, it's earned. Yes, there will be booms and busts but please quit listening to the other guy that has the hot tip or the current flavor of the month to invest in. Use common sense. When you purchase a home, this should be the biggest decision of your life so dont take it for granted. READ THE DISCLOSURES. Why on earth would anyone take out an adjustable rate mortgage? 'I dont need to hear the pros and cons like all the used car selling brokers and realtors used in the last several years to make a buck so save your post. Again, take accountability and use your head. Blaming someone else is simply arrogant especially in this day and age when all your information is a click away, "GOOGLE".
To sum it up, I can only give one piece of advice when it comes to home loans, fixed. Guess what, you know what the payment is and guess what, if the payment shocks you, re- adjust your thinking and buy a smaller home or move to a more affordable area. Sounds pretty easy doesn't it? Quit blaming everyone else, IE investors, lenders and brokers and take accountability.

Anonymous

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Mike,
This may or may not get any attention, since the original publish date on this article was 5/28/2008, but the American legal process will argue with you otherwise on the "legality" of a contract and on people's Civil Rights. First, Correspondents, NOT brokers, buy back loans. These are two different animals in the lending world.
Second, if there is something "inequitable" about current law, anyone has the right to (or try to) persuade a judge and/or a jury otherwise. Laws are challenged and changed everyday.
New ways of looking and reading the law are why we have the American legal system. To continually test and "balance" the laws for the benefit of people's Civil Rights as brought to us by the Constitution of the United States.

noslen

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if you're not sure, take out a fixed rate. I have yet to hear from a victim why they want an ARM program in the first place. bad credit? lower payment? house will go up 50% in 2 yrs? You chose to have an ARM mortgage loan where a regular fixed rate is also readily available. what's up with that?

David A. Yablonsky Sr.

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This is the Chicken Little Syndrome at work. The biggest panic since 1929. Chicken Little is Ben Bernanke. The guy that hit him in the head is Alan Greenspan. Greenspan's Fed created the financial environment that allowed subprime lending in the first place, and then allowed it to run rampant by keeping interest rates artificially low. Everybody got on the big-profits bandwagon from borrower to standard & Poors. Then, when Greenspan (who is no dummy) foresaw that the subprime lending scheme was going to collapse, he left Bernanke holding the subprime bag. Ben, when he realized the position in which he had been placed and not realizing the impact his words as Fed Chief would have, panicked and started the ball rolling by pointing the finger at subprime lenders for virtually all of the world's financial ills. Had he played it closer to the vest, economic, legislative and legal forces would have handled the subprime dilemma without all of the hoopla.
The good news is that the economy is like one of those new flexible garbage bags that hold stuff in, even if it's sharp. There are lots of items in the economic garbage bag and if the built-in legal and economic forces are allowed to settle things, the integrity of the bag will remain unbroken, even though there will be losers.
Happiness is having things your way 51% of the time. If you are ALWAYS happy, you are either a winner or a moron. If you are NEVER happy, you are either a loser or a dyed-in-the-wool pessimist. When the pendulum swings, it's not what happens at either extreme that counts. If the pendulum stopped at either end of the swing, the clock would stop. It's what happens in between the extremes that counts. That's where I figure I'm at. Sometimes a winner, sometimes a loser but at least I'm not stopped in my tracks....

huh...

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I think David A. Yablonsky Sr. is bringing up a good point.. beneath the cliches, metaphors and "look what I say" comentary... Bernanke has been left with quite a mess to clean up. Here's hoping that he stands up and becomes the hero we need in that position, otherwise it's more goernment dollars poorly spent. I for one do not envy his job

This "situation" has created, for better or worse, a significant number of career opportunities in the mortgage repurchase area. Many of you seem to be knowledgeable about the desired requirements for these kinds of roles. I think to the extent that new jobs are being created for individuals who may be out of work through no fault of their own, any ideas as to how to tap into this talent pool?

I found out some time back that my mother age 86, several years ago needed a new roof. A roofer told her that it would cost approx $6000. She of course didn't have that, & went to her bank to borrow the monies, they said no due to her low income, age. (her home was paid off at that time) long story short, she ended up going to Citi Finicial Loans, they said yes they would loan her the monies , gave her papers to sign, she signed. I asked her if she read it, she said no the clerk explained to her what it was??? Guess what folks, "they put a mortgage on her home at a high interest rate for many years? She paid payments to them, not realizing the payments were a mortgage payment on the $6000 loan for a roof, which by the way, was only for 1/2 of a roof, got took there also. Anyway as time went by she had to get a new refrigator, no monies, she went back to Citi, of course they gave her the monies, with a NEW contract, increasing the interest & length of time to pay off. She then started getting her payment notices, mailed the check, next notice she saw where only $13.00 was going to the principal, the rest on the interest. She called Citi, went into their office, guess what, another new contract for her to sign. Her monthly payments were lowered to $215.00 per month, she was so thrilled until she saw after making payments that last time only $2.00 was going on the principal, the rest to interest. At this time she is paying a mortgage on her home for a period of 30 years at $215 per month. I just found this out last week, I couldn't believe it. I told her to go to an attorney, she can't afford to, I told her they have "legal aid" for low income seniors etc. Anyway, I of course, stated, "didn't you realize they were putting a mortgage on your home"? Good grief, your 86, in 30 years that would make you 116 yrs old. Bottom line, she listened to the "NICE SWEET YOUNG MEN" THAT WOULDN'T DO ANYTHING WRONG, Quote. She doesn't want to admit that she is a little senile, forgetful, to trusting of anyone. What a mess now, she lives in a different state then I do, I have told her to go to an attorney, whether she will or not remains to be seen. ANY ADVICE FROM ANYONE??

Is it only $13,000? If she does not have the funds to pay it off I would just try to get the debt structured at a more attractive rate. A home equity line of credit or small no cost home equity loan would probably be a good fit.

Even though originators were clearly in the wrong in some instances, I think those instances were few and far between. Most originators I know care about their reputations and want repeat business, so they treat their customers fairly and follow the rules, regardless of the pressure from realtors and borrowers to get the loans approved (and originators know what I'm talking about). That being said: It would be refreshing to see even one of these troubled borrowers take at least some of the responsibility for agreeing to take the loans. The posts I've read here indicate that the borrower knew that the originator was mis-stating their income. Why didn't they speak up then? If all the facts could be known, I wouldn't be surprised if these people were desparate for the loan money they got, had poor credit histories, and didn't have any concern about the terms of the loan or the fabrications that took place at the time they signed as long as they could get the money. When borrowers sign their 1003 application, they are indicating that the income written on it is correct, right? These borrowers are often the same people who pawn the titles of their cars until payday. They take a gamble that things will work out in their favor (ie, they don't lose their job, get their hours cut back, etc.). Maybe not in every case, but probably in most cases, these borrowers were willing to take a gamble and they lost. It's called speculation, and it happens in the stock market every day. These borrowers gambled on the economy, home values, income going up, availablilty of loan programs. But this is what happens when the masses are told that the "American dream" is their right and loan programs are made available to them that don't require a good credit history or down payment. Scores of financially illiterate people who already don't pay their bills on time start speculating on housing as an investment. Newflash: A home is a liability, not an investment, regardless of what you heard on the morning news program or from your realtor. If originators have a responsibility to inform their borrowers fully about their loan terms (and they do, as indicated by the disclosures that they have to give their borrowers), the borrowers.have a responsibility to understand the details involved with the LARGEST FINANCIAL TRANSACTION of most people's lives. Troubled borrowers: Live, learn, admit you messed up and move forward. That goes for Wall street and the big banks, too. They made those loans available in the first place (like handing out crack at a rehab facility) and also bear some responsibility for the ruin we see around us.

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